Avitec Holdings Limited (SGX:1R6) announced that it will pay a dividend of S$0.0075 per share on May 17. Based on this payment, the company's stock has a dividend yield of 6.7%, an attractive boost to shareholder returns.
Check out our latest analysis for Avi-Tech Holdings.
Avi-Tech Holdings' payments cover reliable income
It's great to have a high dividend yield, but you also need to consider whether the payments are sustainable. Prior to this announcement, Avi-Tech Holdings' dividends accounted for a significant portion of its earnings, but only accounted for 45% of its free cash flow. Cash flow is generally more important than earnings, so we're reassured that the dividend is sustainable going forward, especially since there's plenty of cash left for reinvestment.
If recent trends continue, EPS could expand by 4.3% over the next 12 months. If dividends continue in line with recent trends, the dividend payout ratio is expected to be 72%, which is within a range that is fully satisfactory in terms of dividend sustainability.
Avitec Holdings' dividend is inconsistent.
The company has cut its dividend at least once in its relatively short history. This suggests that the dividend may not be the most reliable. For the past nine years, his annual payment was S$0.012 in 2015, and his most recent financial year payment was S$0.0175. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% over that period. While a modest increase in dividends is a good thing, we think this will be offset by historic payout reductions. If a company's earnings are not stable, it will be difficult to live off dividend income alone.
Dividend increases may be difficult to achieve
With a relatively unstable dividend, it is even more important to assess whether earnings per share are growing, which could indicate future dividend increases. Earnings per share are growing at an annualized rate of 4.3%. Avi-Tech Holdings' earnings per share have barely increased, which isn't ideal. Perhaps this is why the company pays out a large portion of its profits to shareholders. If a company prefers to pay cash to shareholders rather than reinvest it, this can often say a lot about its dividend prospects.
In summary
Overall, we think Avi-Tech Holdings is a solid choice as a dividend stock, even though the dividend did not increase this year. Dividends have historically been at a reasonable level, but that hasn't translated into consistent payouts. The dividend isn't great, but it can be a decent addition to your dividend portfolio.
It's important to note that companies with a consistent dividend policy generate greater investor confidence than companies with an erratic dividend policy. However, there are other things investors should consider when analyzing stock performance. As just one example, we found that 3 warning signs for Avi-Tech Holdings You should know and not one of them should be ignored. If you are a dividend investor, check out this article as well. A carefully selected list of high dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
